Prof. Sameer V.

Charania Ocean Strategy & VRIO Strategic Management

5. BLUE, RED & PURPLE OCEAN STRATEGIES &VRIO ANALYSIS

5.1 Blue, Red & Purple Ocean Strategies
(A) Blue Ocean Strategy
Definition: 'Blue Ocean Strategy is referred to a market for a product where there is no
competition or very less competition. This strategy revolves around searching for a business
in which very few firms operate and where there is no pricing pressure. Example: In Power
& Energy sector, Tata Power & Reliance Energy. Due to no competition the firm has pricing
power or in simple words due to monopoly firm is a price maker.
Blue Ocean Strategy can be applied across sectors or businesses. It is not limited to just one
business. A firm creates new demand by introducing products or services which are never
seen before which in turn attracts customer towards the product or service.
The emphasis of the company is on research and development because new products can
only be made if company invests funds into research department. Blue Ocean is extremely
helpful when a company finds itself constrained in a particular situation. That is when the
company has maximum potential to think differently. Blue Ocean facilitates the process of
thinking different.
Every blue ocean move will ultimately turn into a red ocean. But it is believed that a Blue
Ocean move will give the company a head start it requires to understand and conquer the
existing competition. Competition will ultimately catch up but it typically takes about 2-3
years for a blue ocean move to be emulated.
Example: OYO Rooms, Flipkart: First ecommerce website in India

(B) Red Ocean Strategy:

Every blue ocean move will ultimately turn into a red ocean. Competition will ultimately
catch up but it typically takes about 2-3 years for a blue ocean move to be converted to Red
Ocean strategy.
In today's environment most firms operate under intense competition and try to do
everything to gain market share. When the product comes under pricing pressure there is
always a possibility that a firm's operations could well come under threat. This situation
usually comes when the business is operating in a saturated market, also known as 'Red
Ocean'.
In Red Ocean, firm has to compete in competitive markets which have many players & they
compete with each other for market share. The firm has to fulfill the existing demand from
the consumers. The emphasis is on good service and timely delivery to the customers
because emphasis in this strategy is the satisfaction of the customers so that they do not go
towards the competitors. The firm is a price taker due to presence of large number of sellers
in the market and therefore a firm not enjoys any pricing power in case of this strategy.

(C) Purple Ocean Strategy

The Purple Ocean strategy is the new terminology that describes the “Red ocean” and “Blue
Ocean” mixing together. In simple words, it is about the “Red ocean” that is related to highly
competitive markets mixing with “Blue ocean” that stands for New Untouched Markets
which are mostly New Business Categories.
Purple Ocean Strategy states that a Red ocean Strategy (Competitive Strategy) does not
guarantee success for the firm. Purple Ocean strategy also claims that Blue Ocean Strategy
cannot guarantee the business success in the long run since the Blue Ocean strategy will
finally turn Red.

Page 1 of 5
Prof. Sameer V. Charania Ocean Strategy & VRIO Strategic Management

The Purple Ocean strategy believes that in today’s business world organizations require
both innovative ideas as well as a series of strategies to compete with rivalry and remain
functional in the long term. Consequently, the name Purple Ocean strategy was initially
adopted following the secondary colour generated by combining red and blue colours. It
believes in the power of alliances as the way to generate new business conditions as well as
an instrument to fine-tune organizations. In addition, maintaining bargaining power from
strategic alliances is crucial to the Purple Ocean strategy and this can be affected through a
series of firm actions concerning communications and their execution.

5.2 VRIO Analysis

VRIO Analysis, developed by Jay B. Barney is an analytical technique that analyzes firm's
internal resources & thus the competitive advantage. VRIO is an acronym from the initials of
the names of the evaluation dimensions:
It is an acronym:
V- Value
R- Rareness
I- Imitability
O- Organization

VRIO is the four Questions framework asked about a resource or capability to determine its
competitive potential: The question of Value, The question of Rarity, The question of
Imitability (ease or difficulty to copy), and the question of Organization (ability to exploit the
resource or capability).
Company’s micro-environment is studied / evaluated in the following area
 Financial resources
 Human resources
 Material resources
 Non-material resources (information, Knowledge, Experience)

Page 2 of 5
Prof. Sameer V. Charania Ocean Strategy & VRIO Strategic Management

VRIO analysis is a complement to a PESTEL analysis (which assesses macro-environment).

VRIO is used to assess the situation inside the organization (enterprise) - its resources, their
competitive implication and possible potential for improvement in the given area or for a
given resource.
Strengths and weak areas become clear through these analyses. After knowing the strengths
and areas of concern we can do strategic planning to be successful in business. We can
decide which activity can be out sourced.
 If the resource is not valuable it should be outsourced because it brings no value to us.

 If the resource is valuable but not rare the company is in competitive conformity. It
means we are not worse than our competition,

 If the resource is valuable and rare but it is not expensive to imitate it, we have
a temporary competitive advantage. Other companies will try to imitate it in the near
future i.e. we are at advantageous position but others will catch up soon.

 If the resource is valuable, rare and is expensive to imitate, we are at winning edge but
if we fail to take advantage of this situation, the resource will become expensive for us.
We will be incurring cost and not using the resource.

 If we can manage the advantage and we are able to organize our company and
temporary competitive advantage, it becomes as permanent competitive advantage
Generally the VRIO analysis is used in combination with other analytical techniques. It helps
to find out what resources have the competitive advantages. The advantage of VRIO
analysis is its easy in use and clarity it gives about the resources.

Valuable? Rare? Costly to Is a company Are the capabilities strengths or

Imitate? organized to weaknesses?
exploit it?
No ____ ____ No Weakness
Yes No ____ Yes Strength
Strength & Distinctive
Yes Yes No Yes Competence
Strength & Sustainable
Yes Yes Yes Yes Distinctive Competence
Valuable: How expensive is the resource and how easy is it to obtain on the market
(purchase, lease, rent..)?
The first question of the framework asks if a resource adds value by enabling a firm to
exploit opportunities or defend against threats. If the answer is yes, then a resource is
considered valuable. Resources are also valuable if they help organizations to increase the
perceived customer value. This is done by increasing differentiation or/and decreasing the
price of the product. The resources that cannot meet this condition, lead to competitive
disadvantage. It is important to continually review the value of the resources because
constantly changing internal or external conditions can make them less valuable or useless
at all.

Page 3 of 5
Prof. Sameer V. Charania Ocean Strategy & VRIO Strategic Management

Rare: How rare or limited is the resource?

Resources that can only be acquired by one or very few companies are considered rare.
Rare and valuable resources grant temporary competitive advantage. On the other hand,
the situation when more than few companies have the same resource or uses the capability
in the similar way, leads to competitive parity. This is because firms can use identical
resources to implement the same strategies and no organization can achieve superior
performance.
Even though competitive parity is not the desired position, a firm should not neglect the
resources that are valuable but common. Losing valuable resources and capabilities would
hurt an organization because they are essential for staying in the market.

Imitable (Costly to Imitate): How difficult is it to imitate the resource?

A resource is costly to imitate if other organizations that doesn’t have it can’t imitate, buy or
substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating
(duplicating) the resource or providing the comparable product/service (substituting).
A firm that has valuable, rare and costly to imitate resources can (but not necessarily will)
achieve sustained competitive advantage. Barney has identified three reasons why
resources can be hard to imitate:
• Historical conditions. Resources that were developed due to historical events or over a
long period usually are costly to imitate.
• Causal ambiguity. Companies can’t identify the particular resources that are the cause of
competitive advantage.
• Social Complexity. The resources and capabilities that are based on company’s culture or
interpersonal relationships.

Organized for usage: Is the resource supported by any existing arrangements and can the
organisation use it properly?
The resources itself do not confer any advantage for a company if it’s not organized to
capture the value from them. A firm must organize its management systems, processes,
policies, organizational structure and culture to be able to fully realize the potential of its
valuable, rare and costly to imitate resources and capabilities. Only then the companies can
achieve sustained competitive advantage.
Example: Google’s capability evaluated using VRIO framework
Google's VRIO capability
Excellent employee management
Valuable? Rare? Costly to Is a company
Imitate? organized to
exploit it?
Yes Yes Yes Yes
Result: Sustained Competitive Advantage
Google’s ability to manage their people effectively is a source of both differentiation and
cost advantages. Unlike other companies, which rely on trust and relationship in people
management, Google uses data about its employees to manage them. This capability allows
making correct (data based) decisions about which people to hire and the best way to use
their skills. As a result, Google is able to hire innovative employees that are also very
productive ($1 million in revenue per employee). Besides being valuable, it is also a rare

Page 4 of 5
Prof. Sameer V. Charania Ocean Strategy & VRIO Strategic Management

capability because no other company uses data based employee management so

extensively. Is it costly to imitate? It is costly to imitate, at least, in the near future. First,
companies should build the highly sophisticated software, which is both costly and hard to
do. Second, HR managers should be trained to make data based decisions and forget their
old management methods. Is Google organized to capture value from this capability?
Certainly, it has trained HR managers that know how to use the data and manage people
accordingly. It also has the needed IT skills to collect and manage the data about its
employees.

Page 5 of 5